HANNITY: All right, here we go. Elections, two weeks away: predictions? Are you optimistic?

RICHARD CHENEY, VICE PRESIDENT OF THE UNITED STATES: I'm optimistic. I think we'll hold both the House and the Senate.

HANNITY: Let's talk about, for example, how close are you following these races? Do you look at the polls every day? Are you that involved?

CHENEY: I do get regular reports on the races, the key, targeted races around the country. I've done about 115 campaigns myself over the course of the campaign events in this election cycle. So I've been out to an awful lot of these contests. I know the candidates; I've had a look at the districts. So I do have an interest, obviously, and I think it's important because it's important for the country.

HANNITY: Let's talk about some of the Senate races that everybody's watching pretty closely. Are there some you're more concerned about more than others? You have Pennsylvania, Ohio, Missouri, Montana, Rhode Island. Which ones are you concerned about?

CHENEY: We are focused on the races you've mentioned, as well as a couple of others. And these are the ones I think everybody agrees on both sides are the targeted races, where they're most competitive. And there are probably half a dozen of those and — across the country. I've been at most of them. I haven't been in Rhode Island. I've been in all the others.

HANNITY: Tennessee's a big race.

CHENEY: Tennessee's a big race. Missouri, Ohio and Pennsylvania, Montana, and Rhode Island, those are six that come to mind. But I also think New Jersey, where we've got a shot at picking up the Menendez seat, switching that over. And I think Maryland, where Michael Steele is running a good race against Ben Cardin in the Democratic seat.

HANNITY: 46-46 percent, Survey USA last poll. Pretty close here.

CHENEY: Yes.

HANNITY: But let's talk — do you think, in many ways — because you have been out actively campaigning — is this a referendum, in your view? Is this election about the war? Is this about the administration? Is this about individual candidates? It is a combination thereof?

CHENEY: I think it's a combination. I think there is a temptation and a tendency to focus at the national level, in terms of the national media, on the big issues, the ones that are sort of common threads around the country, and there we're talking about, obviously, the global War on Terror, war in Iraq, the economy.

In other cases, you cannot divorce the fact that in many, many instances you're talking about the people who've held office for a long time, issues at the local level, issues that may take on significance in a particular race that don't have anything at all to do with the national debate.

And I think sometimes we overestimate the extent to which these are national in scope, because we try to bring some order and understanding to it. It's a normal kind of thing for politicians to do and for the press to do, but I don't think we should underestimate the extent to which a lot of these races will turn on local issues.

HANNITY: Let me ask you some thoughts about Nancy Pelosi.

CHENEY: Yes.

HANNITY: She was on "60 Minutes" this weekend. Among some of the things that they have pointed out that she has said about Republicans and the administration: Republicans are immoral, corrupt, they're running a criminal enterprise. She says she can say much worse than that if she wanted to, that the administration's had no judgment, any competent leaders and then she also said she wants to restore civility in Washington. Your thoughts and reaction?

CHENEY: Well, it would seem to be a little inconsistent to use that kind of language on her adversaries and then talk about trying to restore civility. Nancy Pelosi's a — you know, she's the Democratic leader in the House. She earned that post, ran for it, had to compete for it.

I think, frankly, she helps our cause with that kind of talk, but also because of what she believes. I think Nancy is not in sync with the vast majority of the American people.

The Democrats in the House overwhelmingly opposed, for example, legislation that authorizes the terrorist surveillance program that's let us intercept pending attacks against the United States, opposed overwhelmingly the legislation that set up the military commissions and authorized our ability to run a sophisticated interrogation program against Al Qaeda.

Democrats in the Senate voted overwhelmingly and tried to filibuster the Patriot Act. The fact of the matter is, there are fundamental differences, and Nancy represents what I think is that side of the Democratic Party that has not been supportive of and does not believe in a really robust, aggressive prosecution of the global War on Terror.

HANNITY: You mentioned that and you mentioned some very specific things, the Patriot Act, the NSA surveillance program, conferring rights to enemy combatants, I guess would be another issue. If the Democrats are in power, I guess then it becomes a fundamental question: Is America then less safe?

CHENEY: Well, in terms of what I think needs to be done to defend the country, I think we're better off because the president's made some very good decisions and because we've had majority support in the Congress. It's been a Republican Congress that has provided that support. And, as I say, the vast majority of Democrats on some of these key issues have voted against the tools that we've used to defend the country successfully now since 9/11 against further terrorist attacks.

HANNITY: Iraq, obviously, is the most controversial issue in the administration. The big, I guess, debate that's going on now is over the phrase of the term — the president has used it in the past — "stay the course." And now people say, "Well, we seem to be changing that phrase." What specifically is the administration's position on that phrase? And what does that mean now?

CHENEY: Well, the way I think about it, Sean, is what our objective is, obviously, and it's in Iraq to get the situation stabilized with a good government, self-government for the Iraqis, with adequate Iraqi security forces to deal with the security threat. That's where we're headed; that's what it takes to complete the mission.

The process for getting there is to get the Iraqis actively involved in this process, to train and equip a 325,000-man force that's capable of providing that security. So I think about it in terms of completing the mission.

And our strategy has stayed the same pretty much all the way down the road, that is getting the Iraqis into a position where they can deal with their own affairs. We change tactics from time to time, move forces around different areas. Sometimes we've had to beef up our forces in order to deal with anticipated violence when there were national elections.

We've recently moved troops into Baghdad to help deal with the Baghdad security threat. So we are flexible, in terms of how we adapt and adjust to individual circumstances. It's the way I think about it.

HANNITY: You listen to the daily rhetoric on the war — not talking about, for example, talk radio, the new media or the blogosphere — but from the leaders — the John Kerrys, the Pelosis, the Reids, the Ted Kennedys — the continual use of calling the president and vice president liars every day. What impact do you think that has on the war effort and maybe public perception of the war? Has that campaign, which has been pretty vicious at times...

CHENEY: It has.

HANNITY: Has that campaign hurt the war effort? Has it hurt public perception of the war?

CHENEY: Well, I think it's made it very difficult, obviously, to create any kind of sort of bipartisan support for the ongoing effort. There has been some. And Joe Lieberman, for example, a big supporter of the global War on Terror, but for his troubles he got purged from the Democratic Party in Connecticut.

HANNITY: Are you supporting his re-election?

CHENEY: Well, I don't want to harm Joe's chances or prospects, so I haven't said anything about his election campaign, but the fact of the matter is the mood and tenor has been pretty vicious, without question.

The thing I worry about, though, and where I think it really has an impact is overseas. And when you think about the fact that the basic strategy of Al Qaeda, the terrorists, is to break the will of the American people — they fundamentally believe we don't have the stomach for the fight — and when we see this kind of conduct during the course of the campaign, that kind of verbiage used, those kinds of sort of really bitter, vicious comments made, I think what it does is it encourages our adversaries to believe that they're correct.

It, in effect, validates their strategy and leads them to conclude that, if they just keep it up long enough, that we won't have the stomach for the fight, that eventually we'll hang it up and go home.

(END VIDEOTAPE)

HANNITY: We'll have more of my exclusive interview with Vice President Cheney coming up right after the break and his thoughts on Barack Obama and Hillary Clinton coming up.

(COMMERCIAL BREAK)

ALAN COLMES, CO-HOST: We now continue with Sean's exclusive interview with Vice President Dick Cheney.

(BEGIN VIDEOTAPE)

HANNITY: If the Democrats got control of Congress, would they de-fund the war, would they cut and run, would they be successful?

CHENEY: Well, all I can go on is based on what they say and based on their votes. We've seen their votes on the crucial matters for defending the nation in the last few weeks. They have to date, for the most part — to give credit where credit is due — they have supported, for the most part, our funding requests, in terms of the defense budget and the supplemental that's been necessary to prosecute the war. So at this stage, I can't predict that.

I think, but if you look at the record, you've got Jack Murtha — who's one of the leading Democratic spokesmen on military affairs — Jack basically wants to hang it up and pull the troops out. I think that would be a terrible mistake.

HANNITY: ... stock market — new records. Why hasn't that been a bigger issue in the campaign?

CHENEY: Well, we're eager to talk about. I don't know that anybody else is. I spend about half of my remarks out on the stump talking about the economy, because the track record is, I think, very, very good.

I think an awful lot of it's due to the tax policy, what we did with taxes in the spring of '03 when we cut the rates on capital gains, and dividends, and reduced the marriage penalty, and increased the child credit and so forth.

I think the Democrats are committed, if they get in, to reversing those. Charlie Rangel would become chairman of the Ways and Means Committee and he's said he doesn't think a single one of the Bush tax cuts should extended. He thinks they all ought to be terminated and be ended.

So it is an important issue. Trying to get people to focus on it and say, "Yes, the Republicans have done a pretty good job of managing the economy." In spite of 9/11, in spite of recession, in spite of Katrina and all of the turmoil, that the economy has turned out to be very resilient. We've put good policies in place, and it shows in the results.

HANNITY: Quick question about '08. I'll make a multi-point question here. Has anyone approached you to run? Do you think Hillary could be president? And what do you think about Barack Obama?

CHENEY: Well, it's going to take a lot longer than you've got on your show, Sean.

(LAUGHTER)

I have made it very clear that I'm not a candidate, won't be a candidate. I'm not...

HANNITY: Nobody has approached you though and said, "Come on"?

CHENEY: I'm not coy about it. I made my decision a long time ago and it's firm, final, fixed, irrevocable. I don't know how else I can say it. If nominated, I will not run; if elected, I will not serve.

With respect to the other candidates, how the Democrats are going to do, I don't know. I think it's going to be very interesting here on both sides, in both parties, because it's going to be wide open, obviously. I think Hillary Clinton is a formidable candidate.

HANNITY: She could win?

CHENEY: I think she could win. I hope she doesn't; I disagree with her on nearly all the issues, but nobody should underestimate her. She's a very serious candidate for president.

Barack Obama? Attractive guy — don't know him well. Met him a few times. I think, at this stage, my initial take on it was he's been here two years as a senator. I think people might want a little more experience than that, given the nature of the times that we live in, but, certainly, he's an attractive candidate. And if he decides to run, he'll be a player on the Democratic side.

HANNITY: I look at the world situation now — and I've spoken to a lot of people. A lot of people are now using the analogy of the 1930s when we talk about evil in our time.

Do you think that is an appropriate analogy, if we're talking about either Kim Jong-Il and his pursuit of nuclear weapons, his defying of the world, or Ahmadinejad wanting to annihilate Israel and his pursuit of nuclear weapons, Islamic fascism and the threat of what we saw and witnessed on 9/11, and the possibility of terrorists getting a hold of nuclear weapons? Are we dealing with a threat on the level of Nazism, fascism, in your view?

CHENEY: It's different, but it's deadly serious. I mean, if you think about what happens if a group of terrorists end up in the middle of one of our cities with a nuclear weapon, the casualties could rival all the losses we've had in 230 years of American history in our conflicts.

And what is different, as well, too, is technology has changed so much now. It's possible for a few people to do devastating work with sophisticated, modern technology or a biological agent of some kind. Sixty, 70, 80 years ago when we were worried about the Nazis, we were talking about a situation where, obviously, deadly — 50 million lives were lost in World War II, but it took the work of vast armies to do that.

Now, because of modern technology, it's a whole different ballgame. And you can have deadly capability and not even represent a state now, but just a group of terrorists living hidden in a society some place, in Europe or some place else, that's basically friendly to the United States that, nonetheless, has evil intentions and is prepared to kill thousands or hundreds or thousands of people.

So it is a different scale of threat, in some respects. On the other hand, the consequences to modern society, what the damage that could be done to our economy, needless to say, those things are every bit as dangerous, I think, as the situations we've faced in the past.

It used to be we could retire behind our oceans and be fairly confident that we were safe and secure; that day is gone. We know, in the aftermath of 9/11, that, you know, what's going on in the remote mountains of Afghanistan can ultimately lead to the deaths of thousands of Americans here at home.

HANNITY: My last thought here is, well, with that reality — are you as surprised as I am the country is so divided that we're even debating the Patriot Act, even debating NSA surveillance? You know, even debating securing the borders, in some respects? Is that somewhat shocking, in light of the nature of the threat you're describing?

CHENEY: I think it is. Of course, I have my view, and people will say, "Well, that's just Cheney. He's the Darth Vader of the administration, always taking the dark view." I think we have to think about the consequences that could flow from these kinds of events and developments. And I'm sorry that there isn't more unity, if you will, in the nation, in terms of how we address these issues.

But the threat's very real. It's out there. And we need to do everything we can to make certain that we aren't struck again. And that requires the kind of bold, aggressive leadership the president's provided and the great support we've had in Congress. And unfortunately, at this stage, I think there's some jeopardy, depending on how the election comes out, as to whether or not we'll be able to continue those policies.

HANNITY: Mr. Vice President, always good to see you.

CHENEY: Good to see you, Sean, I enjoy the show.

HANNITY: Appreciate it.

CHENEY: All right, sir.

HANNITY: Take care.

(END VIDEOTAPE)

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